Innovation is the key to sustained economic prosperity. Beyond the production of greater output and higher productivity levels, innovation can also lead to a higher quality of living (through wage increase, and job satisfaction levels) as well as social benefits such as inclusion.  However, the journey towards innovation-based growth is not an easy one and countries today are facing the extra hurdle of overcoming the challenges caused by the global pandemic, rising inflation rates and climate change.  
 
At the 2022 Singapore Management University-Xiamen University Global Forum, Professor Hoon Hian Teck, Dean of SMU School of Economics shared his insights on achieving economic prosperity through innovation in a Volatile, Uncertain, Complex and Ambiguous (VUCA) world. Using Singapore as a case study, he explained how indigenous innovation, technological diffusion and economic dynamism can lead to economic resilience and growth, even in the face of global challenges. 

A brief look at Singapore’s economic history  

Since its independence in 1965, Singapore’s real Gross Domestic Product (GDP) per capita has been steadily increasing, even in the face of economic challenges like the Asian financial crisis in 1997. By inviting multinational corporations to set up their factories in the country, Singapore was able to play a part in the world market while also enabling the inflow of ideas that would later boost national productivity and gross domestic product. While multinational corporations continue to play an important role in supplying good jobs for its citizens today, the country now has the human capital and innovative capacity needed to launch new products and develop new business processes. 

Achieving economic growth through technological diffusion and indigenous innovation 

Prof Hoon highlights two key strategies that have been instrumental in helping Singapore achieve its current economic standing - technological diffusion and indigenous innovation. The former refers to the process by which innovations are adopted by the population, while the latter refers to a nation’s innovative capacity to launch new products and develop new business processes. He explains that even as a mature economy, Singapore’s economic growth will depend on productivity growth, which in turn is dependent on technological diffusion and indigenous innovation.

Achieving economic dynamism in the face of global challenges 

Prof Hoon defines economic dynamism as “a society’s ability to marshal together different stakeholders - the citizen workforce, businesses, and government – who possibly have divergent interests, to take advantage of economic opportunities while maintaining social cohesion and a stable political equilibrium”. He highlights how Singapore has managed to mitigate negative external shocks in the past. 

During periods of recession for example, the Singapore government provides wage subsidies or job credits  to organisations to save jobs. In the fight against COVID-19, it introduced several fiscal packages to save jobs and support businesses that were struggling. The Singaporean government has also persisted in implementing economic measures that fight income inequality, such as the Workfare Income Supplement Scheme and the Progressive Wage Model. These are designed to help lower-wage workers enhance their skills and productivity, so they can gain access to opportunities such as higher-paying jobs. With such measures in place, the country can remain in a position of strength socially, politically and economically, even during challenging times.  

What can other Asian countries learn from Singapore? 

Singapore has invested in three main areas to ensure consistent economic growth. Click the hotspots on the images below:

​​​​​Prof Hoon shares that there are many challenges confronting multiple Asian countries, such as the demographic transition leading to an ageing population. There is a need to strengthen the provision of social insurance in a fiscally sustainable way, and these are lessons that can be shared among nations in the region. By working together, Asian countries can develop greater economic growth even during periods of global instability.  

As a final piece of advice, Prof Hoon encourages countries not to turn inwards in the face of global challenges, but to look outwards and be part of the global trading system. He says, “there are vast opportunities to uplift the standard of living of a country’s citizens when the global trading system is well-functioning. Asian nations can play a part through global forums to uphold institutions that support the international rule of law. The digital revolution also allows Asian nations to be integrated in a way that will facilitate international commerce. This might provide an opportunity for business development.”